TALIPATIGALA ESTATE Vs. COMMISSIONER OF INCOME TAX

JUDGEMENT

(1.) IN R. C. No. 55 of 1946 two questions have been referred to this Court for our opinion:

(2.) THE facts common to both these references ate these. Talipatigala, a rubber Estate in Ceylon, was purchased by three persons some years ago and during the relevant period was owned by two of the original purchasers, the third having conveyed his interest to the others on 10th May 1941. At one stage of the proceedings before the In-come-tax Officer and the Appllate Assistant Commissioner it was contended that the two individuals who now own the Estate were merely co-owners or co-sharers and not partners and that no business was being carried on beyond the usual agricultural operations incidental to the ownership of a rubber Estate, It has been found as a fact both by the Income-tax Officer and the Appellate Assistant Commissioner that the two owners of the Estate are in fact partners who carry on the business of rubber production and that the estate is an asset of the firm. This finding is not now open to challenge before us as no question has been referred to us as to whether or not the two persons owning the estate are members of a firm. THE case must now proceed on the basis that the owners of the estate constitute a firm whose business is the working of the rubber estate for profit and that the estate itself is an asset of the partnership.

(3.) THE second question referred to us arises in R. C. No. 55 of 1946 out of the following facts. One of the partners had been assessed in 1941-42 to income-tax in British India on its total income, profits and gains which included his share of the profits of the partnership business carried on in Ceylon. In the assessment year 1942-43 the firm was sought to be assessed as a resident under Section 34 of the Act on the ground that its income had escaped assessment for the previous assessment year 1941-42. It is contend-ed by the learned advocate for the assessee that this assessment was not permissible in view of the terms of Section 34, Income-tax Act. A firm or partnership is different from the members composing it for income-tax purposes and is recognised as a separate assessable unit under Section 3, Income-tax Act, Though according to the Partnership Act a partnership firm is not a single legal person, still for purposes of Income-tax the firm is regarded as having a separate status and existence and as a distinct entity apart from the individual partners who carry on the business of the firm. It is true that this principle is not carried to its logical conclusion in every respect and that there are a few exceptions recognised in the Act itself. But it cannot be said that the assessment of an individual partner in a particular year is a bar to the assessment of the firm for that year. Even granting that when the partner was assessed in 1941-42 on an income which included his share of the profits of the partnership, the Income-tax Officer must have had definite information that there was a partnership which was resident in British India and that its income was liable to assessment in British India, still the Income-tax Officer having taken action within the period of four years of the end of that year, the assessment on the firm was justified under Section 34, Income-tax Act. We do not think there is any room whatever for the argument advanced on behalf of the assessee that there has been no honest exercise of the Income-tax Officer's judgment in the present case, that he must be fixed with knowledge of the existence of the firm as a resident in British India even in 1941-42 and that therefore the present proceedings are illegal. His action was perfectly justified under the terms of Section 34, and the answer to the second question that has been referred to us must be in the affirmative and against the assessee. THE assessee is directed to pay the costs of the Commissioner in R. C. No. 55 of 1946 which we fix at Rs. 250/-. C.R.K./D.B.